I am retired and take educated guesses on all things financial.

December 21, 2007

December 22, 2007: Beware of forecasters

The knowledge that chance has a lot to do with performance helps to clear up a few mysteries in the investment world. It explains why a fund that is at the top of the class one year seldom finishes near the top the next year, and why a so-called expert financial advisor who turns in a spectacular performance one year rarely does better than average the following year.

You should not disregard the record of a fund or an investment advisor, but you need to discover how that record was achieved (and whether the record you're shown is accurate).

Here are two suspect reasons that investment advisers use (especially the stock touts on cable tv and in newsletters):

Proven indicators: The assumptions behind almost all are foolish. You will hear of the 'Super Bowl Indicator" next month. We heard about the "World Series Barometer" last October. And the Ground Hog Indicator says that if the ground hog sees his shadow, interest rates will fall. There are probably several thousand more. If you have heard of one or more of these "proven" indicators, it has been blessed by chance and nothing more.

Persuasive indicators: If a computer sifts through the daily record of prices for the past twenty years, testing thousands of different moving averages, it is bound to find a few that confirmed - quickly and accurately- each turning point in the market. But there is no reason they will have to work correctly the next time. No indicator has the power to forecast the future.

Many investors and advisers like to feel that, because they spend a great deal of time on research, they're approaching their investments scientifically. But if the research is simply a hunt for patterns that have been repeated, it isn't science at all. In fact, it's no more scientific than betting on the number 6 at the roulette table whenever number 12 has come up - simply because twice before you saw a 6 follow a 12.

If a relationship has held two times, five times or even twenty times in the past, that fact isn't -of itself- sufficient reason to expect the relationship to hold even one more time.The past is full of meaningless coincidences that are waiting to be discovered by investors and advisers.

Many of the investor's best laid plans go wrong because they assume that some past patterns will continue into the future. Tt is tempting and so "reasonable" to rely on the track record of a trading system, an advisor or an indicator. Too often, these all fall apart as soon as you risk your money.

When someone makes market predictions, or offers you an investment tool, system or track record, ask why it works. The answer, "See, it DOES work", is not good enough. Even a graph claiming to show a strict relationship between an indicator and a particular result is nothing more than a curiosity. A graph of a coin-flipper's results would be just as impressive.

If you are given a reason or rationale you don't understand, treat it is a poor reason. Don't assume it is over your head. It may,in fact, be beneath you.

Investing isn't child's play. Don't believe that someone can reduce it to a simple task of following an indicator or relying on a perfect track record.

Make sure you hunt down a copies of last year's financial publications and see how ridiculous the "year ahead" predictions were in almost all cases. And how infallible gurus or systems faired below the proverbial monkey throwing darts at the Wall Street Jounal stock tables to pick winners.

December 18, 2007

December 19, 2007: Diggin' deep. Stocks that may rebound.

I did a simple screening today of stocks that have been crushed lately and appear to have the ability to rise based upon the company enterprise and potential earnings out into 2009.

I do not own any of these stocks, but will have them on a short list to review.

Archer Daniels Midland (ADM)
Badger Meter (BMI)
Dynamic Materials Corporation (BOOM)
Clear Channel Outdoor Holdings (CCO)
Centene Corporation (CNC)
CorVel Corporation (CRVL)
Deere (DE)
Dolby Laboratories (DLB)
Flowserve Corporation (FLS)
Interactive Brokers Group (IBKR)
Kimball International (KBALB)
OSI Pharma (OSIP)
OSI Systems (OSIS)
PharmaNet Development Group (PDGI)
Robbins and Meyer (RBN)
Tsakos Energy Navigation (TNP)
Urban Outfitters (URBN)
Walter Industries (WLT)
ZymoGenetics (ZGEN)

Some unfamiliar names. In the present market flux, no surprise.

December 17, 2007

December 18, 2007: Flying,Yields and a few Funds

Back from Colorado. The flights to and from northern Ohio were an experience. I prefer direct flights because of time saved and no possible way to have the airline lose your luggage.

Well, so much for the second reason. Arriving in Denver I discovered that I was the only passenger in the plane standing at the carousel without luggage. I watched the carousel go round and round, hoping that the slightly damaged cardboard box in rotation would magically turn into my suitcase. My son came in to get a laugh as I f-bombed my personal circumstance while stalking into the airlines claim office. Calmly, the service agent frankly told me that she would have my luggage delivered to my Colorado Springs address before 9 a.m. tomorrow. It arrived around noon, mainly because the driver could not locate my son's home on the plat map, being in a new area (not uncommon for the Springs). I found out later that the TSA (Homeland Security) took it out for inspection and it never made it on my plane initially.

Going home after a wonderful visit which included a superb experience in Denver at the Hyatt near the 16th Street Mall for "personal time", I booked my ticket terminating at Akron-Canton, OH airport - which was the only airport north of Columbus to remain open during Sunday's winter storm. Our plane was packed with Clevelanders who were bumped by other airlines who cancelled their Cleveland flights.The flight itself was the fastest in time I can remember. Two hours and ten minutes from Denver to Akron-Canton thanks to strong westerly winds. The landing was rough and unexpected due to poor visibility. Hitting the runway we bounced hard and high three or four times, listed left and finally veered sharply left, stopping yards away from our gate. The lady in the seat in front of me had already purged her airplane snacks and beverages on the second or third bounce coming in. Yes, quite the experience.

On the bright side, I did sell my Cleveland Browns tickets to their Sunday game. So I managed to avoid frostbite and gulping beer in a blizzard.

Going to my son's workplace, a very secure USAF base, Peterson, and to visit his staff and observe his large responsibility made me a very proud father. And seeing his wife, also a USAF Space Weapons officer and their baby son made the visit perfect.

With the market in a downward mode, some readers may be thinking about some other investment vehicles.

Highest yields recently included Countrywide Bank MM at 5.30% ($10,000. min.)800.844.1091, Corus Bank MM at 5.12% (no minimum) 800.555.5710. Six month CDs look good at Countrywide Bank ($10,000. min.) 5.50% and E*Trade 5.25% ($1000.00 min.) 877.929.2434.

Some other nice yields in stocks, bonds and ETFs:

NLY+A Annaly Capital 7.875 Perpetual Preferred
GMAC Smart Notes maturing in three years or less (be selective as a few are always priced to buy)
Cusip 82966UAK9 Sirius 9.625%

Yield provides a floor for most issues. Some foreign currency exposure with yield is not a bad idea at the moment.

December 12, 2007

December 13, 2007: Two bond rating companies I like and a few yield rich selections

OK. Common wisdom is that there are shoes yet to drop in the financial mess. My opinion is that this view is correct. but that there are some stocks that beg attention at this moment.

I already admit to owning Citigroup (C) - too soon.

I recently purchased Anally Mortgage's perpetual 7.85% preferred at a discount to yield 9%.

Here are a few others I may well nibble at for growth, yield - or both. The market is punishing too many stocks too severely in the financial and insurance sector. These are worthy of diligence to purchase.

Assured Guaranty (AGO) is trading about at about $21. This Bermuda-based re insurer has business all over the world and some sub prime exposure. t was savaged down to 14 last month, and I regret not loading up on the shares. There is still lots of upside on this security and I think it is worth $35-40 share.

MBIA Financial (MBI) trading at approximately $32 was a $73 stock a few months ago. Cash infusions into this highly regarded bond rating company and a 4.2% yield makes it very attractive.

Ambac Financial (ABK) trading at $21.00 was a $96 stock a few months ago. With worldwide business mitigating a significant sub prime exposure, this company has been grossly oversold. The yield is around 3%.

If you want a load of yield literally forever, consider the perpetual preferred stock of Ambac.

The 5.95% of February 28, 2013 trades at about 16 and the 5.95% of March 24, 2013 trade at 16 as well, yielding over 9%. This is a premium return on a quality company.
Both are callable at $25.

There are some great buys in these areas if you look past the obsession with the usual big boy financials and invest (speculate for some)in some lesser known securities.

December 09, 2007

December 10, 2007: Aero Defense update

Pictures: up-to- date war targeting room (blurred for security), and,one of the Churchill War Rooms from WW2.

At a recent conference, many of the major players in the Aerospace and Defense game offered foreword-looking comments. In a nutshell, here are a few of them that may flavor your taste to investigate for possible purchase. The sectors are looking very as I have written about in past posts.

General Dynamics (GD): Bullish on long term defense spending. Sees growth in aircraft purchases through at least 2010. Classified projects for OD way up.

Precision Castparts (PCP): Sees strong aerospace cycle. Boeing 787, 737, 777 very strong. Airbus 320 strong. Seamless pipe is eighteen months backlogged. Strong growth opportunities in China. Wants to acquire raw materials suppliers at the right price.

BE Aerospace (BEAV): 787 and A320 make up about 14% of backlog orders. Business very strong overall. Airline consolidation a positive due to a need for standardization and thus retrofit activity.

Spirit AeroSystems (SPR): SPR may still acquire Airbus facilities, though it would be controversial and risky for the company. Will likely build a plant in Malaysia.
Business is very good.

Ducommon (DC0): Becoming increasingly global with locations in Mexico, Taiwan and India. Goal is $1b in sales by 2012 in aircraft parts.Top five programs are Apache, 737, C-17, F-18 and Blackhawk. DCO is up for sale at the right price.

RTI International (RTI): Very bullish across the board. Emphasized value of downstream integration and growth opportunities with fabrication and distribution.
Latest Airbus contract of $1.1b provides Airbus with 35% of titanium requirements, including the A350. 787 contract for seat tracks starts in 2008. Building new sponge capacity, but still not self-sufficient.

AerCap (AER): Used aircraft at its lowest availability in five years. Significant shift amongst airlines from buying to leasing aircraft. Has 325 aircraft in its fleet with A320s making up the largest portion-buying on the cheap from the consortium. They love the A320 new aircraft discounts. Joint venture with China in the works.

Lockheed Martin (LMT): Bullish on defense. Growth mid single digits next few years. The new F-35 fighter will add significantly to the bottom line. Aeronautics is where its at with LMT.

Northrup Grumman (NOC): Pleased with DOD budgets. Ships performance needs to be improved. Remaining Katrina ships should be delivered in 2009. Lots of minor contracts in positive performance mode.

Boeing (BA): Bearish on defense.Focusing on core business - commercial aircraft.

L-3 Communications (LLL): Doing very well in a generally non-competitive business. 88% of sales for 2008 will be in backlog by the end of 2007. Bullish on defense. Strongly downplayed ability for any company to take out L-3.

Goodrich (GR): Bullish. Looks for 10% growth or more. GR not worried about ramp-up for new aircraft production from Airbus and Boeing. 95% hedged in currency exposure in 2008. Likely to close high cost plants and move most operation abroad.

Hexcel (HXL): Management very upbeat on near and long term outlook. Likely to win a big piece of the Airbus A350 platform. This means 6-7 million dollars in composite product per plane - similar to the Boeing 787. There carbon fiber product is high grade quality and thus the producer of choice of the aircraft industry.

Orbital Science (ORB): Bullish. Very strong position on the missile defense program. 90% of revenue in backlog orders.

These notes are intended to give you a bit of general news about the industries. Remember that a good company does not always equate into a good stock.

December 06, 2007

December 6, 2007: Utilities, Energy, Real Estate and Energy MLPs - a list of hopeful securities

Picture: Well, maybe not brilliant - but today's post is decent.

As most of us very busy with preparing for the upcoming holiday season, I admit to adapting this list from a new Credit Suisse First Boston report on these areas. As regulars know, I do have access to their detailed reports, and hope this roster will give you some ideas for securities to investigate. Many have very attractive yields. I especially like Master Limited Partnerships at this time (MLPS).

Here goes:

Alliant Energy (LNT)
Allied Capital (ALD)
American Electric Power (AEP)
Apartment Investment and Management Company (AIV)
Aquila (ILA)
Atlas Pipeline (APL)
Boardwalk Properties (BWP)
BRE Properties (BRE)
Camden Property Trust (CPT)
CenterPoint Energy (CNP)
Digital Realty Trust (DLR)
Enbridge Energy Partners (EEP)
Enterprise Products Partners (EPD)
Highland Distressed Opportunities (HCD)
ITC Holdings (ITC)
Kimco Realty (KIM)
Kinder Morgan Energy (KMP)
Macerich (MAC)
Macquarie Infrastructure (MIC)
Monmouth Realty (MNRTA)
Nustar Energy (NS)
PG&E Corporation (PCG)
Prospect Capital (PSEC)
Simon Property Group (SPG)
TECO Energy (TE)
Teppco Partners (TPP)
Triangle Capital (TCAP)
Wisconsic Energy (WEC)